Germany should look at a joint European approach on regulating so called "naked short-selling" instead of going it alone, the European Central Bank said.
In May, Germany announced a surprise ban on naked short selling of euro zone government bonds and related credit default swaps and shares of the top 10 German financial institutions, and subsequently agreed to widen the ban.
Berlin's unilateral move sent shockwaves through financial markets and ruffled the feathers of some of Germany's partners, and some policymakers called the decision an unwelcome surprise.
At the moment there is no consensus among European Union securities regulators for introducing German-style regulations.
The German parliament passed the proposed 12-month ban on naked short-selling last week.
"Close coordination at Union level of government measures intended to alleviate tensions in the financial markets is of crucial importance," the ECB said in a legal opinion dated July 8th, but posted on the ECB's website later. "Regulatory initiatives aimed at safeguarding the efficiency of financial markets and promoting their orderly functioning can be fully effective only if coordinated."
The ECB did not state whether it favours such bans in principle, saying more research is needed to study risks to financial stability. "A cautious approach underpinned by sound analysis is therefore needed," the ECB said.
The central bank said it would contribute to the EU Commission's study on short-selling. Naked short selling - which Germany had originally banned only for shares in its biggest banks, euro government bonds and related credit default swaps (CDS) - involves selling securities without owning or borrowing the underlying assets in the hope of buying them back at a lower price.
Reuters